Bank minutes point to early rise in interest rates

Interest rates look likely to rise as soon as next month after figures showed the Bank of England was growing increasingly concerned over the surge in inflation.

The warning signal came as the minutes of the MPC's September meeting, published yesterday, showed the committee was worried that rising inflation would trigger a spike in wage claims this winter.

Analysts said that taken together they sent a clear signal that the Bank was poised to raise rates, possibly as soon as next month.

The MPC voted unanimously to keep the base rate unchanged at 4.75 per cent on 7 September after Augustís unexpected increase. One member ­ almost certainly David Blanchflower ­ considered a cut.

The minutes of the meeting said: "Given that inflation was projected to remain above target for some time, a majority judged the data had been supportive of the decision to reduce the degree of monetary accommodation."

The pound rose sharply against the euro and the dollar as traders rushed to price in the odds of fresh rate increases.

Geoffrey Dicks, chief UK economist at Royal Bank of Scotland, said the minutes showed the MPC believed it had only "reduced" the need for further tightening rather than removed it.

"As long as the level of demand allows companies to pass on cost increases, the MPC will feel it has more to do," he said. "A hike in November is increasingly on the cards."

Nick Stamenkovic, senior economist at bond brokers RIA, said an October increase could not be ruled out. "It could happen, although they tend to move in line with the inflation report," he said, referring to the quarterly forecasts to be published in November.

Economists also seized on the monthly survey of businesses by the Bank's network of regional agents, which highlighted mounting inflationary pressure. Prices of retail goods, business services and manufactured goods all rose at their fastest pace since the survey began.

Michael Saunders, chief UK economist at Citigroup, said: "The readings are bound to intensify the MPC's worries about the potential pick-up in inflation as external costs and prices have swung from being disinflationary to being inflationary."

Meanwhile gross mortgage lending totalled £32.7bn in August, a new record high according to the Council of Mortgage Lenders. Public finance figures showed a strong rise in government spending.